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Lecture 8 Supplementary Part 2

Exocopons supplementaryslide7

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Unformatted text preview: ‐Call‐Parity) 3/31/12 5 2. Exo'c Op'ons Supplementary Slide 6 A Taxonomy of Exo'c Op'ons – Compound Op'ons Textbook pp 453‐457: 1.  Can you express the last statement mathema'cally? Answer: max[C(St1, T – t1), St1 + D – K] 2.  Can you find a replica'ng porbolio for the American Call Op'on that includes a compound op'on? (Hint: Take a look at part 1. Now recall our friend the Put‐Call‐Parity) Answer: At t1, by the Put‐Call‐Parity, we can write the value of the ex‐ dividend, unexercised call as C(St1, T ‐ t1) = P(St1, T ‐ t1) + St1 – Ke‐r(T‐t1) Subs'tu'ng this into our answer in part 1, we...
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